Wife Roth IRA

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BobaTeaGood
Posts: 21
Joined: Wed Oct 10, 2018 1:07 pm

Wife Roth IRA

Post by BobaTeaGood » Sat Oct 20, 2018 1:19 am

My wife works part time and her employer does not offer a 401K. My income is fairly strong and so as a family we do not quality for a regular IRA.

I've heard that we can do a back-door Roth IRA conversation -- and the limit is $5,500 per individual. So this $5,500 would be post-tax but any gains from this Roth IRA will NOT be taxed when we take it out after 59.5 years old.

Is that correct? Any other ways for my wife to save money? I have maxed out my 401K each year (along with my company's matching portion).

Appreciate any advice you can provide!

Cheryl604
Posts: 104
Joined: Sat May 24, 2014 12:24 pm

Re: Wife Roth IRA

Post by Cheryl604 » Sat Oct 20, 2018 2:41 am

Yeah you can try a backdoor Roth:

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

The main caveat is to be sure she has no other types of iras in her name.

You could even do a backdoor Roth for you too!

rkhusky
Posts: 5725
Joined: Thu Aug 18, 2011 8:09 pm

Re: Wife Roth IRA

Post by rkhusky » Sat Oct 20, 2018 6:43 am

BobaTeaGood wrote:
Sat Oct 20, 2018 1:19 am
My income is fairly strong and so as a family we do not quality for a regular IRA.
Since she does not have a retirement plan at work, the MAGI limit is $189K to either deduct a Traditional IRA or directly contribute to a Roth IRA. As mentioned above, both of you can contribute via the two-step Backdoor Roth method. But having a Traditional IRA can cause problems with the backdoor Roth process.

BobaTeaGood
Posts: 21
Joined: Wed Oct 10, 2018 1:07 pm

Re: Wife Roth IRA

Post by BobaTeaGood » Sat Oct 20, 2018 10:04 pm

Appreciate your reply. Our MAGI is over $189K. So we are only able to do a Backdoor Roth IRA. We actually do a Backdoor Roth IRA for both her and me. The cap is $5500 per person.

My question is: is there anything else we can do? $5500 per year is a really, really tiny annual savings plan if you know what I mean.

Flyer24
Posts: 376
Joined: Sun Apr 08, 2018 4:21 pm

Re: Wife Roth IRA

Post by Flyer24 » Sat Oct 20, 2018 10:11 pm

With 2 Roth IRAs and 1 401K being maxed out, then that is $29,500 per year. I would say that is pretty good retirement savings annually. Is the mega backdoor option available in his 401K?
Last edited by Flyer24 on Sat Oct 20, 2018 10:27 pm, edited 1 time in total.

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StormShadow
Posts: 597
Joined: Thu Feb 09, 2012 6:20 pm

Re: Wife Roth IRA

Post by StormShadow » Sat Oct 20, 2018 10:12 pm

BobaTeaGood wrote:
Sat Oct 20, 2018 1:19 am
Is that correct? Any other ways for my wife to save money? I have maxed out my 401K each year (along with my company's matching portion).

Appreciate any advice you can provide!
Do you or your wife have a health care or child/dependent care FSA available? Both are use it or lose it options, but if you know you are going to need the money that year anyhow, its a nice way to shelter some cash.

A lot of folks advocate contributing to an HSA with a high deductible health plan. If your family is very healthy, this is a nice option.

If you have kids, a 529 is a great way to save for tuition.

Have any taxable stocks? Did any of them get killed in the market and lose value? If so, consider tax-loss-harvesting.

tarmangani
Posts: 106
Joined: Thu Dec 28, 2017 10:14 am

Re: Wife Roth IRA

Post by tarmangani » Sat Oct 20, 2018 10:14 pm

BobaTeaGood wrote:
Sat Oct 20, 2018 10:04 pm
Appreciate your reply. Our MAGI is over $189K. So we are only able to do a Backdoor Roth IRA. We actually do a Backdoor Roth IRA for both her and me. The cap is $5500 per person.

My question is: is there anything else we can do? $5500 per year is a really, really tiny annual savings plan if you know what I mean.
Unfortunately no. She needs an employer to offer some sort of retirement plan. Perhaps there's a SIMPLE IRA or something instead of a 401k. She can use a taxable account otherwise.

BobaTeaGood
Posts: 21
Joined: Wed Oct 10, 2018 1:07 pm

Re: Wife Roth IRA

Post by BobaTeaGood » Sun Oct 21, 2018 12:36 am

StormShadow wrote:
Sat Oct 20, 2018 10:12 pm
BobaTeaGood wrote:
Sat Oct 20, 2018 1:19 am
Is that correct? Any other ways for my wife to save money? I have maxed out my 401K each year (along with my company's matching portion).

Appreciate any advice you can provide!
Do you or your wife have a health care or child/dependent care FSA available? Both are use it or lose it options, but if you know you are going to need the money that year anyhow, its a nice way to shelter some cash.

A lot of folks advocate contributing to an HSA with a high deductible health plan. If your family is very healthy, this is a nice option.

If you have kids, a 529 is a great way to save for tuition.

Have any taxable stocks? Did any of them get killed in the market and lose value? If so, consider tax-loss-harvesting.
Great suggestions. Thank you.
1) Yes, we already do have 529 for our 2 kids.
2) I use FSA from my employer. We use Dependent Care on this as well.
3) We use my employer's health care plan (HMO). So I don't think I can use HSA.
4) As for stocks that lost value--yes, we do have some. But to my understanding, this will be just classified as a capital loss, which can offset some other capital gains from stocks for either short or long term gains.

BobaTeaGood
Posts: 21
Joined: Wed Oct 10, 2018 1:07 pm

Re: Wife Roth IRA

Post by BobaTeaGood » Sun Oct 21, 2018 12:41 am

Flyer24 wrote:
Sat Oct 20, 2018 10:11 pm
With 2 Roth IRAs and 1 401K being maxed out, then that is $29,500 per year. I would say that is pretty good retirement savings annually. Is the mega backdoor option available in his 401K?
You're right that $29500 per year is not bad. But compared to some our dual-income friends, they're saving $37K a year.

I'm just perplexed as to why we (because my wife works part time) get "penalized" in terms of not being able to put in the full $37K as what our dual-income friends are able to do.

I mean, if anything, because our total income is less (because she's working part time), we desire to save as much as we can.

Not fair!

BobaTeaGood
Posts: 21
Joined: Wed Oct 10, 2018 1:07 pm

Re: Wife Roth IRA

Post by BobaTeaGood » Sun Oct 21, 2018 12:42 am

tarmangani wrote:
Sat Oct 20, 2018 10:14 pm
BobaTeaGood wrote:
Sat Oct 20, 2018 10:04 pm
Appreciate your reply. Our MAGI is over $189K. So we are only able to do a Backdoor Roth IRA. We actually do a Backdoor Roth IRA for both her and me. The cap is $5500 per person.

My question is: is there anything else we can do? $5500 per year is a really, really tiny annual savings plan if you know what I mean.
Unfortunately no. She needs an employer to offer some sort of retirement plan. Perhaps there's a SIMPLE IRA or something instead of a 401k. She can use a taxable account otherwise.
Given our total high income (over $300K total), I don't think we qualify for the Simple IRA. :(

MotoTrojan
Posts: 2469
Joined: Wed Feb 01, 2017 8:39 pm

Re: Wife Roth IRA

Post by MotoTrojan » Sun Oct 21, 2018 3:08 am

Invest in a taxable account tax-efficiently. Could be worse.

ivk5
Posts: 460
Joined: Thu Sep 22, 2016 9:05 am

Re: Wife Roth IRA

Post by ivk5 » Sun Oct 21, 2018 5:34 am

MotoTrojan wrote:
Sun Oct 21, 2018 3:08 am
Invest in a taxable account tax-efficiently. Could be worse.
+1. Nobody is preventing you from saving/investing.

Re SIMPLE IRA: it’s not clear if you understood the suggestion given your MAGI comment. Is your wife an employee (W2) or self-employer / independent contractor (1099, Schedule C)? Sounds like former; but if latter, she has great options.

One other tax-advantaged option that’s available to both of you that I didn’t see mentioned above is I Bonds. You can each put in $10k a year. Do some research - unique properties that I think add flexibility (can redeem without penalty any time from 5-30 years, letting you choose when to realize taxable income when it’s most advantageous for you) & resiliency (insurance against tail risk of much higher than expected inflation).

indexonlyplease
Posts: 1246
Joined: Thu Apr 30, 2015 12:30 pm
Location: Florida

Re: Wife Roth IRA

Post by indexonlyplease » Sun Oct 21, 2018 7:07 am

rkhusky wrote:
Sat Oct 20, 2018 6:43 am
BobaTeaGood wrote:
Sat Oct 20, 2018 1:19 am
My income is fairly strong and so as a family we do not quality for a regular IRA.
Since she does not have a retirement plan at work, the MAGI limit is $189K to either deduct a Traditional IRA or directly contribute to a Roth IRA. As mentioned above, both of you can contribute via the two-step Backdoor Roth method. But having a Traditional IRA can cause problems with the backdoor Roth process.
Question: so if someone has a Traditional IRA they can't do a backdoor IRA. The reason I ask is I was looking at moving my wife's 401k to a traditional IRA since she is no longer working and the 401k she has is not that good. But I may need to do a backdoor Roth next year.

Thanks

mschurner
Posts: 24
Joined: Sun Sep 23, 2018 11:33 pm

Re: Wife Roth IRA

Post by mschurner » Sun Oct 21, 2018 7:24 am

indexonlyplease wrote:
Sun Oct 21, 2018 7:07 am
rkhusky wrote:
Sat Oct 20, 2018 6:43 am
BobaTeaGood wrote:
Sat Oct 20, 2018 1:19 am
My income is fairly strong and so as a family we do not quality for a regular IRA.
Since she does not have a retirement plan at work, the MAGI limit is $189K to either deduct a Traditional IRA or directly contribute to a Roth IRA. As mentioned above, both of you can contribute via the two-step Backdoor Roth method. But having a Traditional IRA can cause problems with the backdoor Roth process.
Question: so if someone has a Traditional IRA they can't do a backdoor IRA. The reason I ask is I was looking at moving my wife's 401k to a traditional IRA since she is no longer working and the 401k she has is not that good. But I may need to do a backdoor Roth next year.

Thanks
You can do backdoor Roth while having other IRA. But you will end up with "pro-tax rule" by IRS. You will subject to tax for the portion you are moving to IRA from 401k. So it's best to avoid having any IRA while doing backdoor Roth.
Your option is just leave the money there in her 401k. I think you could move to solo 401k offered by different companies. Vanguard won't accept rollover from employer 401k plan. Do your own research about solo 401k.

User avatar
BL
Posts: 8380
Joined: Sun Mar 01, 2009 2:28 pm

Re: Wife Roth IRA

Post by BL » Sun Oct 21, 2018 7:43 am

indexonlyplease wrote:
Sun Oct 21, 2018 7:07 am
rkhusky wrote:
Sat Oct 20, 2018 6:43 am
BobaTeaGood wrote:
Sat Oct 20, 2018 1:19 am
My income is fairly strong and so as a family we do not quality for a regular IRA.
Since she does not have a retirement plan at work, the MAGI limit is $189K to either deduct a Traditional IRA or directly contribute to a Roth IRA. As mentioned above, both of you can contribute via the two-step Backdoor Roth method. But having a Traditional IRA can cause problems with the backdoor Roth process.
Question: so if someone has a Traditional IRA they can't do a backdoor IRA. The reason I ask is I was looking at moving my wife's 401k to a traditional IRA since she is no longer working and the 401k she has is not that good. But I may need to do a backdoor Roth next year.

Thanks
Probably don't want to do that. She may later have a work 401k that she could roll it into. Work IRA allows lots of contributions if self-employed. Some allow roll-ins, some don't.

She can convert to Roth by paying the tax at your rate, but that doesn't sound that appealing. Same with stuffing more money into your 401k by using Roth, but giving up deductibility now.

Total stock market or international in taxable sounds good.

I-bonds are fine if you remember you must cash them in at 30 years or before. Will you be retired by then?

Some jobs have "mega-Roth's" available. Is that fair?

HSAs can be super tax-free, if you have the right H D insurance to allow them.

tarmangani
Posts: 106
Joined: Thu Dec 28, 2017 10:14 am

Re: Wife Roth IRA

Post by tarmangani » Sun Oct 21, 2018 10:06 am

indexonlyplease wrote:
Sun Oct 21, 2018 7:07 am
rkhusky wrote:
Sat Oct 20, 2018 6:43 am
BobaTeaGood wrote:
Sat Oct 20, 2018 1:19 am
My income is fairly strong and so as a family we do not quality for a regular IRA.
Since she does not have a retirement plan at work, the MAGI limit is $189K to either deduct a Traditional IRA or directly contribute to a Roth IRA. As mentioned above, both of you can contribute via the two-step Backdoor Roth method. But having a Traditional IRA can cause problems with the backdoor Roth process.
Question: so if someone has a Traditional IRA they can't do a backdoor IRA. The reason I ask is I was looking at moving my wife's 401k to a traditional IRA since she is no longer working and the 401k she has is not that good. But I may need to do a backdoor Roth next year.

Thanks
With backdoor Roths you often try to move assets TO an employer's retirement plan to avoid the pro-rata rule. So imo, if a backdoor Roth is a serious contender next year, she should keep her assets there. Then again if the plan is terrible and her assets sizable she may want to rollover because you can only contribute $6,000 (depending on age) to the Roth, so it might not be worth suffering an awful 401(k) plan. I'd suggest posing the whole question to the group in a new thread.

This page has an example of trying to convert with a large tIRA. As you can see it's not worth it,

https://paytaxeslater.com/beware-of-the ... nversions/

indexonlyplease
Posts: 1246
Joined: Thu Apr 30, 2015 12:30 pm
Location: Florida

Re: Wife Roth IRA

Post by indexonlyplease » Sun Oct 21, 2018 10:35 am

all good points. I will leave it there until she goes to another employer.
We have 2 Roth IRA already at Vanguard that we max out each year. So, yes this will be a problem. And they would of stopped me.
The 401k is a small part of our investments anyway.

I am retired and we already have tax deferred (me) 2 Roths. and her small 401k.

Thanks,

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